The CBA Defends the BBA

We go where others fail to tread


Acronyms aside, there are times when the value of the CBA to the legal profession and our clients is made manifest. The latest comes from the proposal in the latest federal budget to tax work in progress (“WIP”). When it was announced earlier this spring, lawyers across the country were greatly and justifiably concerned. Here is why, and here is how the CBA responded.

While most taxpayers must include the value of WIP in calculating income for tax purposes, certain professionals – lawyers, accountants, dentists, medical doctors, veterinarians and chiropractors – may exclude their WIP when computing taxable income, while being able to deduct their costs in the year associated with that WIP. Income is only recognized when the work is billed. This is called billed-basis accounting (“BBA”). 

While harmonizing tax measures for business is an understandable government goal, there are good reasons why BBA taxation exists for lawyers. Many clients cannot afford to pay legal fees unless they receive a lump sum judgment or settlement at the end of the case. Lawyers have been willing to take chances by acting for them, waiting for potential of payment. 

Most commonly known is the contingency fee agreement in personal injury cases, but there are many others – persons wrongfully dismissed, denied Workers Compensation Board (“WCB”) benefits, and many parties in family law cases fighting for reasonable property settlement – who cannot pay until their case is over. Lawyers often work for them for years before being paid. Many times, those lawyers also cover the expenses along the way. And sometimes the case does not succeed and they lose it all.

If those lawyers must pay income tax for the years before they are paid, while covering their clients’ expenses, many will no longer be able to take these cases. Our citizens, unemployed, in financial distress, will instead be forced into court on their own, or not pursue their legal rights.

So when this budget measure was announced, the CBA sprang into action. Rallying members of our Tax Section, Access to Justice Committee and drawing from members, our National office arranged meetings with federal Finance Department officials and the senior political staff of the Ministers of Finance and Justice. They asked us to provide written policy submissions and we also decided to produce a technical report from the Joint CBA-CPA Canada Taxation Committee, comprising CBA Tax Section Executive members and their accounting counterparts who provide technical briefs to Finance on tax issues. 

Fortunately, as the first Budget Implementation Act tabled in April does not contain the BBA proposal, we had a window of opportunity to work with government and the Opposition parties to turn the course.

Branches and members have acted as well. I have met with MPs from the three major parties. All understood the issue and said they would work within their parties to address it. 

As of the beginning of May, when I write this, we have scored our first victory. The government has announced that contingency fee agreements will not be included. As there is no assurance of payment, that probability cannot be considered income, but the costs associated with the claim continue as a legitimate expense. 

As part of our push for access to justice, we will continue to advocate to exclude cases where the lawyer agrees to await payment to assist a client who otherwise cannot afford legal help.It is in work like this that the CBA shines, having the unique mandate and influence to stickhandle potential problems for our profession nationally and locally.

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